1.1 What is business?

Question 1

Definition of business

Answer 1

A decision-making organization established to produce goods and/or provide services that satisfy needs and wants of consumers in a profitable or non-profitable way.

Question 2

What is goods?

Answer 2

Physical products

e.g., food, clothes, furniture, cars and smartphones.

Question 3

What is services?

Answer 3

Intangible products

e.g., haircuts, tourism, public transport, banking, insurance education, and healthcare.

Question 4

Goods and services differ in four ways. Specifically, services are:

Intangible

Answer 4

Unlike goods, services are not physical in their nature.

Question 5

Goods and services differ in four ways. Specifically, services are:

Inseparable

Answer 5

The service received is attached to the people who deliver the service and the processes used to deliver the service.

Question 6

Goods and services differ in four ways. Specifically, services are:

Perishable (Decay quickly)

Answer 6

Services do not last but are usually consumed at the time of purchase.

Question 7

Goods and services differ in four ways. Specifically, services are:

Variable

Answer 7

Services are heterogeneous because each customer experience is unique.

Question 8

Factors of production: (resources/inputs)

Land

Answer 8

Natural resources needed to produce goods and services. Always referred as physical resources.

Examples include water, timber, sand, minerals, metal ores, plants and animals.

Question 9

Factors of production: (resources/inputs)

Labor

Answer 9

Human effort used to produce goods and services. Always referred as human resources.

Example: people in business such as employees and managers.

Question 10

Factors of production: (resources/inputs)

Capital

Answer 10

Cash and other forms of financial resources used in the production process. As these are all funded by money, capital resources referred to as financial resources.

Examples include tools, machinery, motor vehicles, physical premises, and infrastructure. -> things/equipment used in production

Question 11

Factors of production: (resources/inputs)

Entrepreneurship

Answer 11

Knowledge, skills and experiences of individuals who have the capability to manage the overall production process. Entrepreneurs have the ability and willingness to take risks in order to produce goods and provide services to customers, profitably.

Question 12

Business functions:

Human resources

Answer 12

The function that handles all aspects relate to the workforce. It involves all aspects of business operations related to staff (personnel) within an organization

Ensure that the right people are employed and paid by the business, regularly trained, appraised and treated in accordance with Health & Safety regulations.

Examples include the: recruitment, induction, training, development, appraisal, promotion, remunerating (rewarding) and dismissal of staff.

Question 13

Business functions:

Finance and accounts

Answer 13

The function of an organization refers to the responsibility for ensuring that the business has sufficient funds in order to conduct its daily operations.

It is responsible for managing the organization’s money and maintaining accurate accounts (financial records) of the firm’s funds.

Question 14

Business functions:

Marketing

Answer 14

The function is to ensure the right product is sold at the right price in the right place using appropriate promotion methods.

Question 15

Business functions:

Operating manager

Answer 15

The process of making goods and providing services from the available resources of a business to meet the needs and wants of its customers. It involves ensuring that goods and services meet production targets, deadlines and certain quality standards.

Question 16

Do all four business functions rely on one another?

Answer 16

Yes because these functions of a business are interdependent.

For example, the marketing department cannot determine an appropriate marketing campaign without necessary discussions and approval from the finance and accounts department. All business decisions have implications on the human resources department as people are needed to carry out the other three functions.

Question 17

What is customers?

Answer 17

The people or other businesses that purchase goods and services. They are willing to pay to buy certain goods and services because the production process adds value to the final products.

Question 18

What is adding value?

Answer 18

The process of producing a particular good or service that is worth more than the cost of the resources used to produce it.

For example, a good textbook is worth far more to customers (such as IB Diploma students) than the paper and ink used to publish it.

Question 19

What is consumers?

Answer 19

The people who use goods and services.

Question 20

What is primary sector?

Answer 20

Refers to business activity involved with the extraction of natural resources.

For example, metal ores and coal have to be mined, oil and natural gas have to be drilled from the ground, rubber needs to be extracted from trees, foodstuffs need to be farmed, livestock need to be managed by farmers, and fish need to be trawled.

Hence, primary sector production is also known as extractive production.

Question 21

What is secondary sector?

Answer 21

Refers to business activity involved with the manufacturing or construction of finished products. It encompasses transforming primary sector output into finished goods, ready for sale or use by the consumer.

For instance, plastics need to be made from using oil. It also includes businesses that are involved in transforming other secondary sector output into finished goods, such as assembling the component parts of motor vehicles, laptops, or smartphones.

Question 22

What is tertiary sector?

Answer 22

Refers business activity that involves providing services to customers

For example, consumers and business clients.

Question 23

What is quaternary sector?

Answer 23

Known as the knowledge economy and refers to business activity involving the creation or sharing of knowledge and information. It involves the generation and exploitation of knowledge in wealth creation of the economy, rather than traditional industries that use natural resources or physical labor. Businesses operating in these knowledge-based industries deal with digital information and communications technology (ICT), research and development (R&D), and other high-level services.

Question 24

What is visionary?

Answer 24

An entrepreneur who has the foresight and driving force behind an organization’s growth and development. S/he can see market changes and trends before they actually happen or materialize, or even set the trends themselves.

For example, a visionary will be instrumental behind an organization’s product development, acquisitions and strategic partnerships. Entrepreneurs are typically self-employed or hold the position of chief executive officer (CEO) of an organization.

Question 25

What is one of the factor for economic growth of a nation?

Answer 25

The economic success of a nation is largely dependent on the entrepreneurial spirit within the country. An entrepreneurial culture encourages risk taking in the pursuit of profit. Entrepreneurs also create jobs in the economy, thereby further contributing to the wealth of the country.

Question 26

Challenges that new businesses may encounter include the following:

Lack of finance

Answer 26

Many new businesses lack the necessary finance to have sufficient liquidity to run the business on a daily basis (such as paying wages and utility bills). Financial challenges are a major problem for many start-up businesses. In some cases, the lack of sufficient working capital can lead to bankruptcies.

Question 27

Challenges that new businesses may encounter include the following:

Lack of market research

Answer 27

The key to a successful business is having a commercially viable idea. However, what entrepreneurs think may be a good idea may not materialize due to the lack of effective market research.

For example, new businesses often overestimate the size of their potential market.

Question 28

Challenges that new businesses may encounter include the following:

Poor marketing strategy

Answer 28

New businesses have limited marketing budgets available for promoting and advertising their products. No matter how good an idea might be or how competitively priced it is, customers will not buy it if they are not informed that it exists. For many products, the challenge is a lack of differentiation or not having a unique selling point, so they fail to gain any recognition in the market.

Question 29

Challenges that new businesses may encounter include the following:

Limited human resources

Answer 29

Newly established businesses often find it difficult to attract suitable skilled and experienced staff. Without a well-established business model or corporate image, new firms can struggle to recruit the necessary human resources for its operations.

Question 30

Challenges that new businesses may encounter include the following:

Long hours

Answer 30

Similarly, a common challenge for many new businesses is that the owner(s) often think they can do everything themselves, partly to help keep costs low. However, this if not likely to lead to long-term success for the business.

For example, the entrepreneur may spend many hours after the close of business to work on the firm’s financial accounts. It is common for self-employed people to work significantly longer hours than if they were employed by someone else.

Question 31

Challenges that new businesses may encounter include the following:

Lack of knowledge, skills and experiences

Answer 31

Too often, new entrepreneurs do not have sufficient knowledge, skills or experience in the industry they are entering. For example, they may lack knowledge of their target market, competitors and market trends. They may also lack knowledge of the best suppliers, which can cause higher costs and distribution problems. Finally, inexperienced entrepreneurs may lack the experience to make effective strategic decisions. Ultimately, all of this results in the business making huge losses.

Question 32

There are many interrelated opportunities why people start their own businesses or an enterprise. These reasons include:

Money

Answer 32

Perhaps the key driving force for a person to start their own business is the ambition or motivation to earn profit for themselves. A firm earns profit by selling its products at a price that is higher than its production costs. The owner(s) get to keep the profit as a reward for risk-taking and their entrepreneurship talents.

Question 33

There are many interrelated opportunities why people start their own businesses or an enterprise. These reasons include:

Autonomy

Answer 33

Many people set up their own business to be their own boss, rather than working for someone else. Some people do not like to work for other people and prefer the autonomy that comes with being an entrepreneur. There is a great sense of satisfaction in being the “boss”. The autonomy of being your own boss also speeds up decision-making. Furthermore, having such autonomy also allows business owners to have greater flexibility, in theory, so they can have a better work-life balance.

Question 34

There are many interrelated opportunities why people start their own businesses or an enterprise. These reasons include:

Challenges

Answer 34

Some people are driven by personal challenges. They enjoy the satisfaction of achieving what they perceive to be greatness and striving for self-actualization.

Question 35

There are many interrelated opportunities why people start their own businesses or an enterprise. These reasons include:

Passions

Answer 35

Some entrepreneurs want to pursue their personal passion/interest and turn this into a business opportunity. For such entrepreneurs, the aim of starting their own business is not always to earn a profit.

Question 36

There are many interrelated opportunities why people start their own businesses or an enterprise. These reasons include:

Family ties

Answer 36

For some entrepreneurs, running their own business is part of a family tradition

Question 37

There are many interrelated opportunities why people start their own businesses or an enterprise. These reasons include:

Unfilled market opportunities

Answer 37

Some entrepreneurs spot an unfilled gap in the market for a certain type of good or service, so start their own business.

Question 38

There are many interrelated opportunities why people start their own businesses or an enterprise. These reasons include:

Making a difference

Answer 38

Finally, some people start their own enterprises in order to be able to make a difference to others. Examples include providing a service to the local community such as a medical clinic, a day-care center, or nursing home for the elderly.

Question 39

There are many interrelated opportunities why people start their own businesses or an enterprise. These reasons include:

Not being able to find employment

Answer 39

Another reason cited by the Global Entrepreneurship Monitor is that people become self-employed if they cannot seek paid employment elsewhere.